Oct 09, 2024
When it comes to money management, there may be no topic more emotionally charged than inheritance.
Oct 09, 2024
When it comes to money management, there may be no topic more emotionally charged than inheritance.
That’s true whether you’re planning your own estate (figuring out what will happen with your money and property after you die) or if you think you’ll inherit something from a loved one. If you’re planning your own estate, you might be wondering what will happen to your outstanding debt and whether it might affect your loved ones after you die. And when you’re contemplating the loss of someone special, you’ll want to know how their financial past could affect your future.
Understanding what happens to debt after death can help you feel more prepared and may alleviate some of your concerns. So, here are answers to some of the most common questions about debt after death.
While some types of debts, like federal student loans, essentially go away when you die, most forms of debt are not handled this way. That doesn’t mean your loved ones will need to dip into their personal finances to cover your debts. Instead, the estate executor will take care of any outstanding debts using the money and property you leave behind.
After you die, your creditors have a right to file a claim against your estate for the money you owe. That money would come out of your estate, along with any other expenses like funeral or burial costs, if you leave behind enough money or property to cover them. Then, the remaining funds are released to your heirs according to the instructions in your will.
If you don't leave behind any money or property, or your debt is worth more than your assets, any remaining balance on your debts goes into default. But as long as you were the only name on the account and did not have a co-signer or joint borrower, your loved ones won’t have to pay your outstanding debt.
However, if two or more people owned the account, your co-signer or joint borrower is still on the hook for the balance. For example, if you shared a credit card with your partner, it becomes your partner’s responsibility after your death.
Don’t worry, your loved ones can’t be forced to take responsibility for the remaining mortgage if it’s only in your name. But if they want to keep (or sell) the home, they’ll need to talk to the mortgage company about assuming the loan and avoiding foreclosure.
If your estate can’t cover your car loan debt, your loved ones can allow the lender to repossess the car. If they want to keep the car, they’ll need talk to the lender about assuming the debt. They can also sell it to pay off the loan. If your car is leased and there is no co-signer, the lease will become part of your estate. Your loved ones will likely be responsible for continuing the payments.1
Personal loan debts won’t burden your loved ones, as long as you’re the sole account holder, but they will be paid out of your estate. However, if there’s a living co-signer or joint borrower on the loan, that person will still be responsible for making payments against the borrowed amount, per the terms of the loan.
If you find yourself solely responsible for a debt you co-signed or jointly borrowed with someone who died, you may be feeling overwhelmed. But knowing you have options for how to handle it can help you feel more empowered as you move forward. You can:
Consolidating your debt by taking out a personal loan to cover the balance can help. This approach streamlines debt repayment since you’re making a single monthly payment instead of paying each creditor separately.
Taking out a personal loan may also help save you money. If you are now the only borrower on higher-interest credit card debt for example, you could pay thousands of dollars in interest by the time you pay it off. Consolidating debt with a personal loan that has a lower interest rate than your other balances means you’ll pay less interest, so you can pay off debt faster.
Becoming the only borrower on debt you weren’t expecting isn't easy, but it can be manageable. Our debt consolidation calculator can help you estimate what you might save if you combine those multiple debts into one.
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